US commercial property sales down in October-report

By Ilaina Jonas

NEW YORK, Nov 20 (Reuters) - U.S. office building sales fell 70 percent in October from a year earlier, yet another sign the credit crunch that began in the U.S. housing market has spread to the commercial real estate market, Real Capital Analytics said on Tuesday.

But the five-year bull run on commercial real estate may not be over, although the participants have clearly changed, the real estate research firm said.

The credit crisis has weighed on U.S. commercial real estate and the office market in particular, making purchases funded nearly all by debt a thing of the past. Even lower- leveraged deals are harder to come by as borrowing rates rise and risk become a significant factor in obtaining a loan.

"The remarkable increase in sales activity, rise in prices and compression of cap rates (the first year's yield on the property) since 2001 ended abruptly in August," the Capital Trends Monthly report said. "Since then, the dramatic fall in sales volume, drop in prices and rise in cap rates certainly meets the definition of an inflection point."

But capital has continued to flow into commercial property, especially globally and the greater cycle may not be quite over, the firm said.

Sales of significant office properties -- those more than $5 million -- fell to $4.4 billion in October. More than $14 billion are reported in contract, but only $4 billion of these have been announced. Sellers have pulled properties off the market when they could not get the price they wanted.

New offerings have exceeded closings 2-to-1 over the past 60 days, the report said.

The credit crisis has meant cash rules again and those loaded with it -- foreign and institutional investors -- make up more of the buyers. Since the onset of tighter credit, their market share has grown to 38 percent of purchases from 26 percent. These buyers generally favor stable, steady cash producing properties in major markets.